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Briefing

December 2015

Economic challenges and prospects


of the refugee influx
SUMMARY
The current refugee influx represents the largest population movement in Europe
since World War II. Its size and complexity make it difficult to draw conclusions on the
economic challenges and prospects valid for each Member State of the European
Union (EU).
Many experts agree that, in the short term, the refugee influx will lead to rising costs,
arising from the need to provide food, shelter and first aid. In the longer term, the
refugee influx could be positive for the European economy by, for example, addressing
the EU's alarming demographic trends. Depending on their education, skills and
willingness to work, refugees might improve the ratio of active workers and also
contribute to innovation, entrepreneurship and GDP growth. Regarding the labour
market, migrants can fill important niches both in fast-growing and declining sectors of
the economy, and contribute to labour-market flexibility.
Refugee, migration and asylum policy is largely under the auspices of the Member
States and intergovernmental EU policy-making. The uncontrolled mass arrival of
refugees has highlighted the different views in the Member States on migration and
immigration, driven by economic, social and cultural divergences and spurred the
debate on a new EU migration policy.
According to the European Parliament, the EU and its Member States should target the
potential gains from the current influx by, inter alia, successful economic and social
integration of the refugees.

In this briefing:
Background
The economic effects of
migration in theory and practice
A closer look at demography,
refugee education and
employment
The EU's migration policy and
response to the current refugee
influx
Outlook
Main references

EPRS | European Parliamentary Research Service


Author: Cemal Karakas
Members' Research Service
PE 572.809 EN
EPRS Economic challenges and prospects of the refugee influx

Glossary
Dublin Regulation: establishes the principle that only one EU Member State is responsible for
examining an asylum application. The objective of Council Regulation (EC) No 343/2003 is to
prevent abuse of the system by the submission of several asylum applications by one
applicant.
Refugee / asylum-seeker / migrant: refugee is used to describe all beneficiaries of inter-
national protection. Under EU law, an asylum-seeker is a person who has applied for asylum.
Migrant covers non-EU citizens who have their residence in an EU Member State for a period
of at least 12 months.
Schengen Agreement: concerns the right of EU citizens (and others) to move across internal
borders without checks, but also the duty of member states to manage the external borders of
the Schengen area. The Schengen area includes most EU Member States, plus Norway, Iceland
and Switzerland.

Background
The current refugee influx represents the largest population movement in Europe since
the Second World War. According to the European Asylum Support Office (EASO), in
September 2015 asylum applications in the EU+ countries1 rose for the fifth consecutive
month reaching a new record high with more than 170 000 applications.2 In the whole
of 2014, the EU Member States received about 650 000 asylum applications, whereas
the European Commission expects 1 million refugee arrivals in 2015, 1.5 million in 2016
and half a million in 2017.
The huge refugee inflow has led to diverging views in the EU on how to deal not only
with border controls and humanitarian aid, but also with the social and economic
challenges. While the Commission in its latest Economic Forecast (Autumn 2015) says
that the influx could depending on the skills of the new arrivals moderately boost
the EU economy, some Member States remain sceptical.
The arrival of refugees has also provoked debates in academia. Thomas Piketty, the
author of Capital in the 21st Century, for instance, says that the crisis represents an
opportunity for Europe to 'kick-start the continent's economy'. Hans-Werner Sinn, one
of Germanys best-known economists, is less optimistic. He argues that, as many of the
refugees are low-skilled, the economic challenges will outweigh the opportunities.
The economic effects of migration in theory and practice
The mainstream argument in the debate on the current arrival of refugees is that in the
short term, transit and destination countries will have costs arising from the need to
provide food, shelter and first aid to refugees.
In the medium term, destination countries also have to deal with processing asylum
applications and the costs of social and economic integration (including social benefits,
healthcare, and costs for education and occupational training).3
In the long term, however, the refugee influx might be positive for the European
economy. The new migrants can play an important role in addressing Europes alarming
demographic trends, and depending on their skills and willingness to work improve
the ratio of active workers to non-active persons (e.g. pensioners), whilst also
contributing to innovation, entrepreneurship and GDP growth. In respect of the labour
market, some experts argue that migrants can fill important niches both in fast-growing

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EPRS Economic challenges and prospects of the refugee influx

and declining sectors of the economy and contribute to labour-market flexibility. In


addition, young migrants are often, like native-born non-migrants, considered to be
better educated than those nearing retirement. Regarding the public purse, in the long
run migrants can contribute more in taxes and social contributions than they receive in
benefits. So migrants have the potential to make a positive impact on the public purse,
with employment being the most visible determinant of their net fiscal contribution.4
A couple of empirical studies have tried to assess the economic impact of migration,
nonetheless the shortage of harmonised comparative data on international migration
(e.g. by skills levels) may distort the results.
One study analyses the impact of migration on economic growth for 22 countries of the
Organisation for Economic Co-operation and Development (OECD) in the period 1986-
2006. It concludes there is a positive, but small impact of the new human capital on GDP
growth. According to the authors, the contribution of migrants to human capital
increase tends to counteract the impact of population increase on capital per worker,
but the net effect is small. An increase of 50% in net migration of foreign-born persons
generates less than one tenth of a percentage point variation in productivity growth.
Table 1 Fiscal contribution, benefits and net contribution by migration status, 2007-2009 average
In euros (PPP adjusted)
Contribution Benefits Net contribution

Native Mixed Migrant Native Mixed Migrant Native Mixed Migrant

Switzerland 19 858 26 353 20 149 4 889 4 917 5 601 14 968 21 437 14 549
Iceland 18 972 23 117 12 380 6 701 5 559 3 087 12 272 17 558 9 292
Luxembourg 20 043 23 732 20 463 21 270 16 500 11 285 - 1 228 7 232 9 178
Italy 15 346 19 552 12 310 11 366 7 426 3 162 3 980 12 126 9 148
United States 15 527 22 844 13 145 6 993 5 687 4 871 8 534 17 158 8 274
Greece 13 246 16 068 9 476 8 238 5 557 1 748 5 008 10 511 7 728
Spain 10 518 14 820 10 057 7 412 4 990 2 561 3 106 9 830 7 496
Belgium 18 856 25 611 13 707 9 697 8 781 8 147 9 159 16 830 5 560
Canada 12 959 21 160 11 518 5 407 5 666 6 351 7 552 15 494 5 167
Norway 17 382 31 613 12 368 12 327 11 246 7 863 5 055 20 366 4 505
Portugal 8 024 13 854 8 320 7 074 4 055 3 841 950 9 799 4 479
United Kingdom 11 503 20 990 10 803 8 899 9 036 7 774 2 604 11 954 3 029
Slovenia 13 316 14 096 10 491 8 866 11 728 7 485 4 450 2 368 3 006
Netherlands 21 175 32 576 12 415 11 236 11 273 9 871 9 940 21 303 2 544
Denmark 17 574 26 428 11 041 10 211 8 715 8 673 7 362 17 713 2 368
Austria 16 705 21 465 12 334 13 330 15 022 9 980 3 375 6 443 2 353
Australia 8 476 12 314 7 447 4 700 3 961 5 144 3 776 8 353 2 303
Hungary 6 531 8 466 6 643 5 450 6 551 4 779 1 081 1 915 1 864
Finland 15 188 19 970 8 942 9 482 7 706 7 628 5 706 12 265 1 314
Sweden 17 041 24 472 11 005 10 226 10 999 10 109 6 815 13 473 896
Estonia 7 528 9 378 3 990 3 014 3 501 3 992 4 514 5 877 - 2
Czech Republic 8 465 8 095 4 914 4 990 6 965 5 100 3 474 1 116 - 184
Ireland 9 527 16 574 7 309 12 014 10 063 8 583 - 2 487 6 511 - 1 274
France 13 359 21 324 9 961 10 952 12 193 11 412 2 407 9 131 - 1 451
Slovak Republic 6 151 6 876 2 439 4 003 6 123 4 610 2 148 752 - 2 171
Germany 15 373 14 176 8 094 9 498 18 629 13 727 5 875 - 4 453 - 5 633
Poland 5 470 5 853 2 319 5 178 10 483 8 009 291 - 4 630 - 5 691

Data source: OECD, International Migration Outlook 2013, p. 174.


NB: 'Mixed' refers to households in which one of the two household heads is foreign-born.

The 'International Migration Outlook 2013' report of the OECD looks, inter alia, at the
fiscal impact of migration for European OECD countries and for Australia, Canada and

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EPRS Economic challenges and prospects of the refugee influx

the United States. The study suggests that the impact of the cumulative waves of
migration (that have arrived over the past 50 years in OECD countries) is on average
close to zero, rarely exceeding 0.5% of GDP in either positive or negative terms. The
impact is highest in Switzerland and Luxembourg, where immigrants provide an
estimated net benefit of about 2% of GDP to the public purse. It seems that some
countries are more successful than others in integrating immigrants into their labour
markets. While in the UK, for instance, proportionately only slightly more immigrants
are unemployed than natives, in Spain, Greece, Belgium and Sweden there is a gap of
10 percentage points or more. Divergences appear also on other indices: France,
Germany and Finland, for instance, have gaps between the educational performance of
children of native-born parents and the children of immigrants.
Mnz et al. conclude in their report that the impact of immigration is, on average,
negative, but small: 'This suggests, that the potential downward effect is offset by
additional creation of employment due to economies of scale and spillovers (which
increase productivity) as well as higher demand for goods and services (due to
population growth through immigration).'5
A further study by Sinn analyses the dependency of (statutory) minimum wages, low-
income labour and migration. More flexibility or even the decrease of minimum wages
(supported by fiscal wage subsidies for employers) might contribute to the economic
integration of new migrants. However, the competing of the new migrants with the
earlier immigrants might lead to crowding-out effects in the low-income sector.6
A closer look at demography, refugee education and employment
In the debate on the refugees economic impact, many macroeconomic predictions
(e.g. GDP growth, public purse) are linked to demographic change, and the education
and employability of refugees and migrants.
The ageing of Europe is among the EUs most serious challenges. The continents long-
term social and economic potential is limited by its
This is a very acute problem because for
looming demographic crisis. In 2013, the total
years Europe has been doing a sort of
fertility rate in the EU is slightly above 1.5 children collective demographic suicide. To change
per woman. This presents a serious challenge for the demographic trends, promoting birth is
the social security system, including pensions, and not enough. It also has to be done through
health and long-term care. immigration. If not, we're creating a great
According to the 2015 Ageing Report of the difficulty to growth and to the welfare of
future generations.
European Commission, the population of the EU
Member States will slowly increase from 507 Vitor Constncio
million (2013) to 523 million (2060). At the same Vice-President, European Central Bank
time, there will be fewer in employment, the
working age cohort (15-64) will decrease from 211 million (2013) to 202 million (2060).
As in 2060 people will live (on average) six years longer than today, according to
Eurostat statistics the proportion of the population aged 65 or older will rise from 18.5%
(2014) to 28.4% (2060) (see Figure 1). As a consequence, the ratio of working age
people (15-64) to those 65 and older the old-age dependency ratio is expected to
decrease from around 4 to 1 in 2013 to 2 to 1 by 2060.
It is very likely, that France, the UK and Sweden will continue to have population growth
and slower ageing due to immigration and higher birth rates. Due to its low birth rates,
Germany already has one of the EU's oldest populations. If this demographic trend

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EPRS Economic challenges and prospects of the refugee influx

continues, in 2060 Germany will be only the EUs third biggest country by population,
behind the UK and France.7
Despite this
Figure 1 EU-28 population structure by age groups, 20142060
worrying (% of total population)
demographic trend,
100%
the current refugee 5.2% 5.8% 7.1% 9.0% 10.9% 11.8%
13.4%
influx remains a 14.6% 16.8% 17.9%
17.2% 16.6%
contested issue in 80% 65.9% 64.1%
Germany. In the 61.2%
58.5% 56.9% 56.6%
1960s and 1970s,
60%
Germany faced a
shortage of unskilled
labour. Large-scale 40%
migrations to
Germany from,
amongst others, 20%
Turkey, Italy and 15.6% 15.6% 14.9% 14.6% 15.0% 15.0%

Greece, delivered a
00%
substantial economic 2014 2020 2030 2040 2050 2060
boost, but also
0-14 years 15-64 years 65-79 years >80 years
unleashed a debate
on cultural and Data source: Eurostat.
social integration issues, and on discrimination. In the context of the current refugee
inflow, Germany is pondering its social and economic costs and benefits. According to
projections by the German Council of Economic Advisors, the additional budgetary costs
of the influx for Germany will be between 5.9 billion and 8.3 billion in 2015, and up to
14.3 billion in the year after. This public expenditure is expected to stimulate domestic
demand and to increase GDP by between 0.3% and 0.5% in 2016.8
In order to mitigate the demographic challenge, experts urge efforts to support families
and increase the fertility rate, as well as developing controlled migration and a
sustainable integration policy. In this context, the education status of the refugees
comes into play. Generally speaking, young immigrants (like their native counterparts)
are more educated than immigrants at retirement age. There are nevertheless regional
differences. Many migrants from eastern Europe are, on average better qualified than
refugees from the Middle East. The World Bank estimates the literacy rate among those
aged 14-24 at 96% for Syrians, 82% for Iraqis and 47% for Afghans. These aspects might
be of relevance for destination countries when providing residence and work permits.
Although employment is an important determinant of migrants net fiscal contribution,
only a small number of these potential workers came through (national) managed
labour migration. More important were motivations such as family reunification, and
humanitarian and free-movement migration.9 Even if migration is not directly driven by
workforce needs, immigrants play an important role in many sectors. According to the
OECD, migrants represented 22% of entries into strongly growing occupations in the
United States and 15% in Europe. These included, amongst others, occupations in the
field of health-care and STEM (Science, Technology, Engineering and Mathematics).10 At
the same time, immigrants represented about a quarter of entries into the most
strongly declining occupations in Europe (24%) and the United States (28%). In Europe,
these occupations include craft and related trades workers as well as machine operators

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Figure 2 Employment rates of foreign-born population aged 15-64 not in education by educational
level, 2012-2013 (Difference with the native-born in percentage points)

Data source: OECD, Indicators of Immigrant Integration 2015: Settling In, p. 83.

and assemblers; in the United States, they concern mostly jobs in production,
installation, maintenance and repair. In all these areas, immigrants are filling labour
needs by taking up jobs regarded by domestic workers as unattractive or lacking career
prospects.11 Relative to the native-born population, low-educated migrants are better
integrated in the labour market than highly educated ones. On the one hand, Member
States are complaining about supposedly (too) low-skilled migrants/refugees but
evidence shows that those who are eventually granted access to the labour market
have to do so often below their skill level.
A look at Turkey, where almost 2 million Syrian refugees found shelter, supports that
view. A 2015 study on behalf of the World Bank Group demonstrates that the arrival of
the refugees resulted in large-scale displacement of informal, low-educated Turkish
workers (mostly women in part-time positions), especially in the agriculture sector.
Interestingly, the inflow of refugees also created higher-wage formal jobs, allowing for
occupational upgrading of Turkish workers.
Similar experiences were seen in Jordan. In areas settled by Syrian refugees,
unemployment has not increased. Syrian workers found employment in low-skill sectors
that Jordanians avoided. This evidence is consistent with that on the net impact of
migrants on labour markets, which is rather small or positive on average. These effects
are not limited to the Syrian example. In the 1990s, Burundian and Rwandan refugees
generated net economic gains for their Tanzanian host communities.
The EU's migration policy and response to the current refugee influx
Immigration policy is still a core sovereignty of the Member States, with selected and
limited executive powers for the EU (e.g. the Dublin Regulation). Since the introduction
of the Lisbon Treaty, the EU however has among others the competence to lay down
the conditions of entry and residence for non-EU citizens entering and residing legally in
a Member State for purposes of family reunification (Articles 79 and 80 of the Treaty on
the Functioning of the European Union).12 In this context, the 'Blue Card' (see box) was
introduced. It aims to, inter alia, counter the negative economic effects of demographic
ageing and to strengthen the EU's economic performance. Further instruments of EU

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EPRS Economic challenges and prospects of the refugee influx

migration policy include the promotion of a common border management through


Frontex, and financial support through AMIF.
The uncontrolled massive arrival of refugees has highlighted the different views in the
Member States on migration, driven by economic, social and cultural divergences.
EU 'Blue Card' Directive
In 2009, the EU adopted a Directive which introduces a special residence and work permit for
non-EU citizens. The 'Blue Card' aims to put in place attractive conditions for non-EU workers
considering taking up high-skill employment in a Member State. In addition, it aims to create a
harmonised fast-track procedure and common performance criteria, such as a work contract,
professional qualifications and a minimum salary level. The Blue Card may facilitate access to
the labour market and may entitle holders to favourable conditions for family reunification and
movement within the EU. Member States, however, still retain the right to determine
admission rates for people coming from non-EU countries to seek work.
AMIF
AMIF stands for the EUs Asylum, Migration and Integration Fund. It aims to support efforts
made at the EU and national levels to manage refugee influxes. Support is also given to non-EU
countries and organisations, including the United Nations High Commissioner for Human Rights
(UNHCR) and the United Nations World Food Programme (WFP). For the 2014-2020 period,
AMIF is endowed with 3.1 billion. Additional funding of 9.2 billion has been allocated to
address the recent refugee influx in 2015-2016.

These concerns not only led to sporadic suspension of the Schengen Agreement, but
also raised questions about how to cope with the costs of the refugee inflow in the
context of consolidation of public finances. Some Member States argue that the influx
constitutes an 'unusual event' and have asked the Commission to activate the flexibility
clause in the Stability and Growth Pact. Pierre Moscovici, Commissioner for Economic
and Financial Affairs, noted that the extra spending on the refugees could increase GDP
by between 0.2% and 0.3% by 2017. Valdis Dombrovskis, European Commission Vice-
President for the Euro and Social Dialogue, said on 10 November 2015 that the
Commission is fully committed to applying the Stability and Growth Pact. This also
includes the flexibility aspect and will be assessed on a 'case-by-case basis'.
Outlook
The size and complexity of the current refugee influx make it difficult to draw economic
conclusions applicable to all EU Member States, who have different approaches and
capacities to respond. Most studies suggest that the refugee and migration influx is
neither a burden on the public purse nor to the labour market. According to
Commissioner Moscovici, the 'weak but positive' economic effect of the refugees could
help offset growing hostility towards them.
The European Parliament has discussed the refugee issue with heads of state or
government and with the European Commission.13 Besides the need for an overhaul of
EU migration policy and the humanitarian aspect, the economic challenges and
prospects were discussed. In order to realise the potential gains from this new wave of
immigration, the EU and its Member States should not only focus on the short-term
costs, but also take into account the long-term benefits. In this context, the successful
integration of the refugees, both economically and socially, may be key.

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Main references
A permanent effect of temporary immigration on economic growth, J. Muysken and T.H.W.
Ziesemer, Applied Economics, Vol. 45, Issue 28, 2013, pp. 4050-4059.
The Fiscal Impact of Immigration in OECD Countries, OECD, International Migration Outlook
2013, OECD Publishing, Paris, 2013.
Immigration and Economic Growth in the OECD Countries, 1986-2006, E. Boubtane, J.C. Dumont
and C. Rault, Institute for the Study of Labor (IZA), Discussion Paper No. 8681, November 2014.
Indicators of Immigrant Integration 2015: Settling In, OECD, OECD Publishing, Paris, 2015.
Is Immigration good for the economy?, OECD, Migration Policy Debates, May 2014.
Endnotes
1
The EU+ is composed of the 28 EU Member States plus Norway and Switzerland.
2
The figures cover only 26 of the 30 EU+ countries.
3
Cf. Tax burden and migration: a political economy theory and evidence, A. Razina, E. Sadkaa and P. Swagelb,
Journal of Public Economics, Vol. 85, Issue 2, August 2002, pp. 167190; Migration and Social Replacement
Incomes: How to Protect Low-Income Workers in the Industrialized Countries Against the Forces of Globalization
and Market Integration, H.W. Sinn, International Tax and Public Finance, Vol. 12, Issue 4, August 2005, pp 375-393.
4
Cf. D.S. Massey and J.E. Taylor (eds.), International Migration: Prospects and Policies in a Global Market, Oxford
University Press, 2007; Is Immigration good for the economy?, OECD, Migration Policy Debates, May 2014;
Integration von Flchtlingen - eine langfristig lohnende Investition, M. Fratzscher and S. Junker, DIW
Wochenbericht No. 45, November 2015, pp. 1083-1088.
5
Cf. The Costs and Benefits of European Immigration, Rainer Mnz, Thomas Straubhaar, Florin Vadean, Nadia
Vadean, Hamburg Institute of International Economics (HWWI), HWWI Research Programme Migration
Migration Research Group Report No. 3, Hamburg, 2006, p. 7.
6
Cf. Migration and Social Replacement Incomes: How to Protect Low-Income Workers in the Industrialized
Countries Against the Forces of Globalization and Market Integration, H.W. Sinn, International Tax and Public
Finance, Vol. 12, Issue 4, August 2005, pp 375-393. See also H.W. Sinns article Migration and Social Replacement
Incomes and also his interview with the German weekly Die Zeit.
7
On the demographic developments and the necessity of migration in Germany, cf. also the Bertelsmann
Foundation report Zuwanderungsbedarf aus Drittstaaten in Deutschland bis 2050.
8
See the report of the German Council of Economic Advisors, p. 16.
9
Here, the diverging legislations on migration come into play. In the European Union, EU citizens enjoy the right to
free movement. In Australia, Canada and Switzerland, labour migration depending on qualification and skills is an
important socio-economic determinant and managed by national authorities.
10
Cf. Is Immigration good for the economy?, OECD, Migration Policy Debates, May 2014, p. 2.
11
Ibid.
12
For further aspects of the EU migration policy see the EPRS publication Third-country migration and European
labour markets: Integrating foreigners, A. Stuchlik and E.M. Poptcheva, European Parliamentary Research Service
(EPRS), European Parliament, July 2015.
13
Debates on this issue took place during the September, October I and October II plenary sessions.

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European Union, 2015.
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